Manufacturing growth slows

13-12-2007

Manufacturing growth slows
The balance of companies who reported above normal order books, as opposed to a lower than usual level of demand, fell to two per cent this month, the Confederation of British Industry's (CBI) latest poll of firms shows.

News of the decline in orders follows the balance of eight per cent recorded for November, when reported demand by manufacturers reached a near 12-year high.

Expectations of future growth within the sector have also fallen to the lowest level in almost two years, the CBI confirmed in its industrial trends survey.

The balance of firms expecting higher, as opposed to lower, output over the coming months dropped back to three per cent in December – down from nine per cent in November and representing the lowest level since January 2006.

But the CBI said, while demand for manufactured goods appeared to be slowing within the domestic market, exports overseas were increasing.

The recent weakening of the pound against the euro was cited by the organisation as the likely reason for the particular growth in UK exports to Europe.

Commenting on the results of the poll of over 500 manufacturers, CBI chief economic adviser Ian McCafferty said: "The manufacturing sector has become much leaner in recent years, which has enabled it to largely withstand the triple whammy of rising commodity costs, a strong pound against the dollar, and five interest rate rises.

"Although firms are now reporting weakening demand and expect output to grow only modestly next quarter, it is a case of the sector changing from fifth gear to fourth, certainly not juddering to a halt."

Meanwhile, reports suggest the Bank of England will be cheered by confirmation the pricing intentions of manufacturers have weakened.

Factory gate prices are monitored by monetary policymakers responsible for setting the UK's benchmark interest rate, along with other potential inflationary pressures.

The CBI's survey shows a balance of 15 per cent of manufacturers intend to raise their prices over the next three months, lower than the balance of 21 per cent reported in November.

Nonetheless the number of firms planning to increase the prices they charge for their products is still higher than the long-term average balance of minus two, indicating manufacturers are passing on rising commodity costs to consumers, the CBI said.

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